As the year is coming to its end, it is quite apparent that the year 2019, in almost all spheres of life and in all corners of the world, has been quite disruptive. Disruptions are also happening in medicine; it is, indeed, quite remarkable how quickly medicine in the U.S. is changing with almost nobody seeming to notice. Or is it that nobody wishes to notice?
Disappearing private practice
Private medicine, which still represented the core of U.S. medicine in the 1980s and 1990s, is quickly disappearing (see two figures on page 7.). Causes are complex and multifactorial, but a very important contributing factor is the large-scale provider networks built by hospital organizations and insurance companies and their almost monopolistic powers to control patient referrals.
Excluded from traditional referral sources, physicians who prefer to stay outside of these networks often find it difficult to compete in the marketplace. Physicians completing their training, in most cases, used to join existing private group practices or opened their own private practice. Both of these options hardly exist anymore, as fewer and fewer private practice groups have survived (most have been bought up by hospital conglomerates and integrated into their own provider networks). Especially for young physicians with considerable debt burdens after eight years of premedical education and medical school, investments in small private practice start ups do no longer appear affordable or logical. In their contractual agreements with large health insurance companies, large hospital conglomerates, thus, increasingly monopolize healthcare in many markets, leaving little economically viable space for the traditional private practitioner.
Changes in physician employment and practice ownership
The current generation of young physicians also differs from earlier generations in quite a number of important characteristics: They, for example, are less entrepreneurial. Individuals with entrepreneurial skills nowadays only rarely choose careers in medicine. In past decades medicine was a perfect vehicle to hone such skills; now, start-up industries are much more attractive to such individuals. With a majority of medical students and physicians in training now women, and with the social fabric of physicians having radically changed (as recently reported by a major newspaper, the medical profession, which used to be socially and politically deeply conservative, especially over the last two decades, has becomes socially and politically mostly progressive), career goals of young physicians have changed in parallel: Many now favor employment with fixed hours and defined free time over long and often unpredictable hours that come with the responsibility of owning a medical practice.
The three pillars of “industrialization” of medicine
Though Democratic candidates for the presidency in the U.S. increasingly openly advocate for a single-payor system of socialized medicine like in many European countries, Canada and Australia, the U.S. actually appears on the way to a very different, and not necessarily better, system that we, here at CHR, have come to call the “industrialization” of medicine. Like socialized medicine, it is characterized by loss of decision-making powers by patients as well as physicians and practically unlimited control by an administrative bureaucracy representing the current “owners” of medical care in the U.S., made up of three distinct industry groupings: The not-for-profit and for-profit hospital industries, the medical insurance industry and the pharma and medical device industries.
Recent mergers between Aetna (one of the nation’s largest health insurer) and CVS (one of the nation’s largest pharmacy and drug benefit managers) and between Cigna (another of the nation’s largest medical insurance companies) and Express Script (the nation’s largest pharmacy benefit managers) clearly demonstrates that further consolidations between these power players can be expected, further concentrating power over U.S. medicine in only vary few corporate suites. Each of these power players spending millions of dollars annually on lobbying efforts in Washington, one cannot be surprised that the deprivatization of U.S. medicine and the ever-greater accumulation of economic powers by these three industrial power structures has remained under the radar of political discussion and media attention. Physicians and patients, of course, do not have comparable resources to lobby Washington.
How the federal government contributes to deprivatization
Willingly or simply out of ignorance, the federal government, indeed, further supports the deprivatization and elimination of private medicine even under a Republican administration and, often, to the government’s own financial detriment. Here is probably the most obvious example: All over the U.S., both not-for-profit and for-profit hospitals, often at greatly discounted prices, have been buying up the private practices of their attending physicians at fire sale prices because, often otherwise excluded from the hospitals’ large-scale contracting with insurance companies, physicians had no other economic choices.
Selling physicians usually become hospital employees for a limited number of years, allowing for smooth transitions of the patient population into the hospital’s patient base. Though physicians for a limited time receive guaranteed salaries, these arrangements are highly profitable for the purchasing hospitals because the physician’s private practice now automatically becomes a hospital practice and, as such, is entitled to charge facility fees on top of regular practice fees. Under most third-party insurance contracts, as well as Medicare and Medicaid contracts, physicians in private practice are not permitted to charge facility fees. Just because of changed ownership, the now “industrialized” hospital-owned practice, is, however, suddenly permitted to collect significantly higher fees for every procedure it performs than what the same practice was allowed to charge under physician ownership. Since these rules also apply to Medicare and Medicaid, state and federal expenses for healthcare dramatically increase when a private practice’s patient population is transferred into institutional patient pools. Hospitals further benefit from now also becoming the exclusive providers of ancillary services, like laboratories, x-rays, etc. to these patients: yet another benefit withheld by federal law from physicians in private practice who under Stark laws are prohibited from using ancillary service providers for their patients in which they are holding ownership.
Finally, many (and, in New York city, most) of these large hospital organizations are not-for-profit entities, which, therefore, in addition are tax-exempt. How, then, can a physician in private practice be expected to successfully compete in practice with hospital-employed colleagues without receiving equal benefits? Current laws, therefore, will ultimately be responsible for the almost complete disappearance of what used to be the at the core of U.S. healthcare: the private-practice physician.
Private equity and IVF
Most recently, Wall Street also rediscovered healthcare as a potential vehicle of growth, resulting in the recycling of a business model that in the late 1990 was known as the physician practice management industry but, within a few short years, and after creating a few companies with market valuations above 1 billion dollars, completely imploded. On Wall Street this time is known as the “physician practice management bubble.”
Based on the hypothesis that national networks of clinics and physicians can operate more effectively by obtaining the benefits of scale and best practice, especially when it comes to building national and even international networks of IVF clinics, much of the basic model has somewhat surprisingly remained the same, considering the above-noted implosion of the concept in the 1990s. There are, however, also distinct differences in how private equity money has been entering medical care in more recent years: For example, instead of applying the model to all medical specialties, as was the case in the 1990s, investors are now very selective in which areas of medicine they make their investments. And, except for dermatology and some other niche areas, probably no other domain in medicine has been as actively pursued in recent years by private equity as the IVF field.
Creating networks of IVF clinics
Like in the 1990, this process started with the purchase of infertility centers. In Australia and New Zealand, where the process of buying fertility centers got reinvigorated already over a decade ago, only three companies now control over 80% of the IVF market. From there, the purchase of IVF centers by private equity moved to Asia and Europe and over the last few years also into the U.S. We have previously commented on the increasing “industrialization” of IVF in these pages, by which we refer to the increasing ownership and management of IVF centers by non-physician entities. Since our initial review of the subject, the “industrialization” of IVF has greatly sped up, with a large number of some of the most prominent IVF centers all over the world being sold to investors or investors simply financing new IVF centers and hiring physicians to run them. For example, both have been happening with the Colorado Center for Reproductive Medicine (CCRM), initially a presence only in Colorado but, since being purchased by private equity, now spread out to many major cities in the U.S., including here in NYC.
IntergraMed, the oldest and, likely, the largest physician practice management company in the IVF field in the U.S., was also the first to go public, and in September of 2012, the first to be taken private by Sagard Capital Partners with a valuation of $165.5 million. Though quite successful in accumulating IVF centers in the U.S. and Canada, and in the process, likely establishing the largest network of fertility clinics in North America, IntegraMed recently recorded one of the most painful losses in the industry: The company was forced to announce the closure of a new practice model it had established as a separate division of the company under the name of Trellis, after only a little over one year in business. The BUSINESS INSIDER at the time described a first such center in NYC as “a fancy egg-freezing clinic in NYC, looking nothing like any doctor’s office.”
The egg-freezing craze
Private equity has been drawn to the infertility field more than other medical specialties for a number of superficially valid reasons, all related to the expectation that IVF and related services promise rapid growth: Women above age 35 are the only age group in the U.S. population with still-growing birth rates, while younger women uniformly have fewer and fewer children. U.S. birth rates in 2018, indeed, fell to the lowest point in 50 years, as The New York Times just recently reported on November 27. Older women require disproportionately more fertility treatments and with more older women attempting to have children, IVF is considered a rather safe investment bet. Similar considerations also led to the widespread belief that egg freezing would become a growth industry on its own. Private equity, indeed, invested million of dollars in the concept of free-standing egg freezing centers, which, at least so far, do not appear to meet expectations.
The above-described free-standing egg freezing center created by IntegraMed under the name of Trellis in downtown Manhattan, was actually not even marketed as an IVF center but as a “fertility studio.” In marketing materials, the company described itself as “the Equinox of egg freezing.” A journalist from the BUSINESS INSIDER who was invited to tour Trellis found it to be “more a fancy spa than a medical clinic.” As the BUSINESS INSIDER reported, since women in their 30s were already aware of egg freezing, the new business model for the Trellis division of IntegraMed was now to convince younger Millennials in their 20s to freeze their eggs.
We, of course, have repeatedly made the point in these pages that egg freezing is not just a spa activity but a serious medical treatment that must be approached with appropriate professional seriousness and quality controls, as any other complex medical treatment characterized by a degree of invasiveness deserves. We, therefore, notice with a degree of satisfaction that the New York public apparently did not fall for this kind of marketing for egg freezing.
Yet, Trellis was not the only investor-driven medical provider in this niche to specifically pursue “the younger crowd.” The first company to do so was Prelude Fertility, a company founded by serial entrepreneur Martin Varsavsky (and financed by Lee Equity Partners). Already in November of 2016 in FORBES, Varsavsky advocated that the future of the world was to be based on freezing one’s gametes (sperm and eggs) at young ages and peak fertility, so that one later in life could more efficiently reproduce with the help of companies like Prelude. He secured $200 million to build a company that would freeze eggs and sperm at young ages, would store those gametes until needed, would fertilize frozen-thawed eggs with frozen-thawed sperm and create embryos that then would be tested for chromosomal abnormalities (with preimplantation genetic testing for aneuploidy, PGT-A, a by now fully discredited test, further addressed below) before being transferred for pregnancies. All of these reproductive activities over a lifetime would, of course, be managed by IVF centers and cryopreservation facilities owned by Prelude Fertility.
That medically uneducated investors may come up with such unrealistic–and to a degree–dystopian commercial schemes may appear strange but may not surprise; one cannot but wonder, however, who the medical advisors have been who convinced Varsavsky and his backers to bet $200 million on such a concept. In this context it, therefore, is more than surprising that one of New York’s premiere medical schools, New York University, recently more or less handed over their well-known IVF program to Prelude’s management authority. As a joint announcement on October 4, 2018 noted, “Prelude and NYU Langone Health announced today a partnership, establishing the NYU Langone Fertility Center as the latest partner in the Prelude Network.” In full compliance with Prelude’s business plan, their combined statement further made the following point: “Prelude and NYU Langone will expand the Fertility Center’s geographic footprint with additional satellite locations, and with particular emphasis on egg freezing, outreach to Millennials to help them take greater control of their fertility until they are ready to have a baby.”
To hear such dystopian language from a commercial enterprise is seriously disturbing; to hear it from a leading academic institution is outright shocking!
In CHR’s opinion and, as IntegraMed’s experience with Trellis demonstrates, fortunately, this is also a business strategy destined to fail. The public has by now fully recognized that the concept of “egg and sperm freezing for all” is not a serious, scientifically thought-through and validated clinical concept but a highly premature, and likely misleading, marketing ploy. Even how the media report on egg freezing has dramatically changed, with initially very obvious enthusiasm giving way to much more realistic assessments of what egg freezing really can and cannot offer to women. And, likely most importantly, Millennials are simply too smart and too driven to self-education to believe exaggerations and misrepresentations directed at them for obviously primarily commercial reasons only.
It is not too difficult to discover that “social” egg freezing (as egg freezing to extend and/or preserve fertility has been named by many) is not, as widely and falsely represented by the egg freezing industry, “no longer considered an experimental procedure.” The truth is that only egg freezing for “medical reasons” (when young women are threatened with losing their ovarian function because of impending surgery or chemo- and/or radiation therapies) has been declared “no longer experimental” by the American Society for Reproductive Medicine (ASRM). Because outcomes are still mostly unpredictable, “social” egg freezing is, rightly, still considered an “experimental” procedure.
Millennials also understand that most of them will have absolutely no fertility problems in their futures. Exposing them to invasive, experimental and very costly procedures, therefore, at best, represents a rather dubious concept of exposing large number of perfectly healthy individuals to medical procedures that will benefit only a small minority among them.
Likely the two most marketing-savvy and most visible egg freezing centers in the NYC area have been Kindbody and Extend Fertility, the latter claiming to have become the largest egg freezing center in the U.S. Both initially stressing in their marketing efforts their “specialization” in egg freezing to separate themselves from standard IVF clinics, in recent weeks, they revised these marketing efforts, emphasizing offers of “full IVF services” at their facilities. Apparently, concentrating solely on egg freezing did not pay the bills.
Warning signs for investors in the infertility niche
Trellis’ failure as a commercial enterprise based exclusively on egg freezing and the apparent sub-par performances of other free-standing egg-freezing centers are, however, not the only warning sign for private equity. Danger signs are also popping up regarding other investment strategies: As noted before, establishment of nationwide and international networks of fertility centers has been in vogue for over a decade. Only three companies, for example, now control a vast majority of the IVF market in Australia and New Zealand and have further expanded into Asia. Two large, originally only Spanish, IVF clinic chains have gone international, with expansions into other European countries, the Middle East, India, South America and even the U.S. The Spanish conglomerate IVI, likely the world’s largest chain of IVF centers, entered the U.S. market through the acquisition of RMA New Jersey and related entities, as previously noted in these pages. Grupo Eugin, a second quickly expanding, originally Spanish, network of clinics is financed by Middle Eastern equity investors. In addition, Asian commercial interests from Korea, mainland China and Hong Kong have also entered the U.S. market by either purchasing IVF centers or starting them from scratch. New York City is home to a number of those. IVF practices, thus, still present a widely sought-out commodity all over the world, including in NYC.
The Prime minister of the Czech Republic, one of the richest men in the country and a major investor all over Europe, owns among his many commercial interests a large chain of IVF centers in the Czech Republic and neighboring counties. Recent reports, however, suggest that this investment is not doing too well, and some underperforming centers have become available for purchase. Rumors that other clinic chains are trying to sell some of their assets are also getting stronger by the day. A rapidly growing number of IVF clinics in these commercial networks, therefore, do not appear to perform up to investors’ expectations and may, soon, come back to market.
Responsible to their stake and that of shareholders, investors cannot be blamed for driving improved profitability in order to maximize asset values. Based on Australian reports in the media, CHR in a recent publication, therefore, associated “industrialization” with increasing IVF cycle cost. Those are primarily achieved through add-ons to IVF cycles, which allow for additional charges. The most consequential add-on, especially over the last 5-6 years, likely, has been PGT-A, which not only added cost to IVF from the PGT-A procedure itself (ca. $5,000 in the U.S.) but also from practice changes that PGT-A requires, such as extended embryo culture to blastocyst stage and all-freeze cycles, requiring another frozen-thawed cycle to transfer embryos after PGT-A results have been obtained, creating additional costs for patients.
Concomitantly with increased utilization of add-ons, many never vetted for their efficacy or potential adverse effects on IVF outcomes, live birth rates after IVF cycles have been declining significantly all over the world. Because no other potential association have been reported except for increasing utilization of many of these add-ons, CHR investigators reached the conclusion that these add-ons, likely, must be the responsible causes for observed outcome declines. Between 2013 and 2016 (the last available year of nationally reported data as of this point), the U.S. lost approximately one-third of its non-donor fresh cycle live birth rate. The same has happened to Japan over the last decade, resulting in a tripling of IVF cycle starts in order to maintain live birth numbers. Results all around the world, indeed, demonstrate that declines in IVF birth rates always lead to a compensatory increase in the number of IVF cycles started, thereby equalizing live birth numbers.
CHR investigators coined the term “commoditization” of IVF for the addition of unnecessary and often harmful add-ons to IVF, which over the last decade have so drastically changed the fabric of IVF. One, therefore, can say that the “industrialization” of IVF pretty automatically leads to “commoditization” of IVF and, with it, to a declining quality of IVF services, as best witnessed by declining live birth rates and compensatory increases in IVF cycle starts which, of course, also increases revenues for IVF centers.
The disaster called PGT-A
As predicted by CHR for almost two decades, PGT-A, (though the name has changed, the test is, still, as in earlier incarnations, the examination of embryos for chromosomal abnormalities), finally, appears to have reached the end of its road. At least on two prior occasions we had hoped to have had reached this point, but the genetic testing industry each time came up with allegedly “better” testing options, convincing the IVF community to stick with the procedure.
This time appears, however, to be different, even though in anticipation of what was coming down the research pipeline, the genetic testing industry, in the so-called non-invasive PGT-A (NIPGT-A), once again, is attempting to extend the procedure’s lifespan by introducing yet another generation of the procedure to the marketplace without any prior validation studies. (Two prominent organization, CCRM and New Hope, are already offering patients NIPGT-A or, as we have come to call it, PGS 4.0.)
There are three reasons for our optimism: The first is a recently published study in Fertility & Sterility, now widely called the STAR Study, that conclusively demonstrated in a prospectively randomized and well-controlled study that PGT-A offered no outcome advantages whatsoever in association with IVF in either live birth or miscarriage rates. Remarkably, the first author of the study was Santiago Munné, PhD, likely the most outspoken proponent of the procedure in the world and the repeated subject of some derision in these pages for his often unsubstantiated declarations on the subject. He, however, deserves recognition for, likely, having provided at least one nail for the final coffin of PGT-A.
The second, third and fourth and, likely, final nails came from a number of prominent speakers at the just completed FRMC in NYC, which CHR co-sponsored, who presented highly convincing evidence that, simply because of the biology of preimplantation-stage human embryos, characterized by almost universal presence of chromosomally abnormal cells in the trophectoderms, where biopsies are taken in PGT-A, a single such biopsy, simply cannot determine whether an embryo can be transferred or should be discarded. End of story! And, thirdly, we, simply, cannot believe that anybody of right mind would buy yet another move of the goalposts from the genetic testing industry. Nobody can be that gullible!
That this time, it indeed appears to be the end of the PGT-A story is also supported by major corporate players in the industry apparently pulling back from the PGT-A business. In the U.S., two major laboratories, though not yet a complete withdrawal, have announced significant reductions in resource allocated to PGT-A, and a European laboratory owned by a pharma company is allegedly seeking a buyer for its commercial PGT-A laboratory.
The irony in all of this is that a company like Cooper Surgical, which purchased some of this country’s most prominent PGT-A laboratories just a few years ago in establishing Cooper Genomics, likely wasted in excess of $100 million in capital, which could have been allocated in the field so much better and more profitably. Paradoxically, after convincing not only investors, but also physicians and their patients of the clinical usefulness of PGT-A, Santiago Munné, PhD, and others, in very timely fashion, cashed out of the PGT-A fantasy, when selling all of their laboratories in the U.S. and overseas to Cooper and other interested parties. With additional PGT-A laboratories having sprung up almost everywhere, one now must wonder how this newly created behemoth of an industry will satisfy its investors going into the future.
Moreover, in order to close the cycle, Santiago Munné has also been serving as a principal advisor to the previously noted serial entrepreneur Martin Varsavsky, the founder of Prelude Fertility, with its dystopian business plan of freezing everybody’s eggs and sperm and testing everybody’s embryos by PGT-A prior to transfer. The psychology literature well demonstrates that “experts” often lose objectivity on a subject of expertise because their deep interest in that subject deprives them of the necessary objectivity. Varsavsky and other investigators, in their pursuit of egg freezing and PGT-A, very obviously relied on such “experts.” There is, therefore, a very obvious lesson to be learned here for future investors in the fertility industry.
This article, of course, should make it very obvious that we, here at CHR, are somewhat puzzled by and, often, concerned about many of the commercial developments we have been observing in the medical field in general and, of course, especially in what over the last decade has become a rapidly growing “infertility industry” worldwide. Considering how we view the current status of infertility care, we are puzzled by all the money that has been streaming into the infertility field, often in support of what we consider clinically and economically completely illogical applications.
Though we, of course, sympathize with those who wish to support our medical specialty, which we love, with their investments, we are deeply concerned about those who we care most about and for whom all of what we are doing in meant for: our patients. And for them, we are seriously worried about significantly declining pregnancy and live birth rates in IVF, despite such a plethora of financial support from the investment community (or, maybe, because of all the false directions the investment community has been pursuing after, obviously, receiving poor expert advice).
CHR, nevertheless, considers infertility to be destined for rapid growth but sees this growth happening not by adding useless diagnostic and therapeutic add-ons to current IVF practices but by developing radically new and disruptive treatments. The progress made in basic research has been dramatic over the last few years and major breakthroughs in our abilities to help infertile couples seem just around the corner. Such treatments, however, must be validated and be predictable in outcomes before introduced to the marketplace. They also must make infertility treatments simpler and, therefore, less costly, so that fertility becomes achievable for everybody who wants it.
Adding unneeded, ineffective and, at times, even detrimental treatments to IVF, may offer short-term financial gains for a few proponents of such treatment, but in the long run, in medicine like in science, truth in general prevails over grandstanding, and what does not benefit patients is discovered. Ultimately, only validated, statistically significant treatment improvements for patients end up creating solid foundations for future commercial success. We urge investors in the field, therefore, to be more careful who they chose as their professional advisors.